News eDaily10 Aug 2017

Asia:New business surge leads to embedded value growth

| 10 Aug 2017

Total reported Asian embedded value (EV) grew by 15.3% on a comparable basis to US$339 billion in 2016 from US$294 billion the previous year, says Milliman, the global provider of actuarial and related products and services in a study on reported year-end 2016 EV results for several major insurance companies operating in Asia, excluding Japan.

Among 18 companies which had reported EV by the time of the report, those posting the largest Asian EV at the 2016 year-end were China Life, Ping An Life and AIA, at US$94 billion, $52 billion and $42 billion, respectively.

By insurer, Zurich, Prudential and New China Life reported the largest growth in EV during 2016, with increases of 36%, 35% and 25%, respectively. Zurich’s growth in Asia EV was driven by favourable operating assumption changes as well as capital injections. Prudential’s significant EV growth came from strong growth in VNB, as well as favourable exchange rate movements from the depreciation of sterling in 2016.


Growth in value of in-force business (VIF) was positive for all countries in 2016, underpinned primarily by strong value of new business (VNB) results and, in some cases, increasing long-term investment return assumptions.

South Korea saw the largest VIF growth of 31%, mainly from strong margin-driven growth in VNB across all companies, despite a fall in new business annualised premium equivalent (APE). Hong Kong also posted strong VIF growth of 20%, mainly from significant VNB contributions, in particular large volumes of new business sold to mainland Chinese visitors.


Total reported VNB for Asia stood at $35.0 billion in 2016, compared with $25.0 billion in 2015, representing growth of 40%.

By market, Hong Kong and China reported the highest growth in VNB on a constant currency basis, largely driven by significantly higher new business premiums (India’s 62% VNB growth is purely based on ICICI Prudential, which was the only company to disclose FY2016-17 EV results by the report data cut-off date). The strong growth in VNB was mainly driven by large volumes of new business and increased margins associated with a shift away from savings to protection products. The Hong Kong results reflect AIA’s growth in VNB, with about half the new business sales being to mainland Chinese visitors.

Indonesia and Thailand reported reductions in VNB; the former was mainly due to Prudential Indonesia experiencing reduced new business sales because of ‘systemic challenges in the economy’, while the latter was mainly driven by AIA Thailand seeing “lower new business volumes including reduced activity… during the mourning period following the passing of the Thai king”.

Ping An and ICICI Prudential reported the largest growth in VNB, at 65% and 62%, respectively. These results were driven by increased new business sales for both, a change in capital requirements for Ping An, and improvements in persistency for ICICI Prudential.

Based on the various EV disclosures, the most profitable life insurance new business in 2016 appeared to be sold in Thailand, Indonesia and Hong Kong. Thailand’s increased margin is surprising in the context of the very low yield curve over the last year but it does reflect AIA Thailand’s success in refocusing sales efforts into higher-margin long-term protection business and capital-efficient unit linked products. The VNB data for Thailand is based on one AIA data point, however, with a margin that is unlikely to be replicated across the whole industry. Meanwhile, Indonesia and Hong Kong saw lower margins than in 2015, reflecting lower reported profitability of new business for Prudential Indonesia, and material falls in margins for AIA Hong Kong and Manulife Hong Kong.

Life insurance sales continued to rise strongly in Asia during 2016, with gross written premium (GWP) estimated to have increased by 28%, with China’s 43% growth being a major contributor.

EV methodologies used in the region remain varied, including Traditional Embedded Value (TEV), European Embedded Value (EEV), Market-Consistent Embedded Value (MCEV4 ) and Indian Embedded Value (IEV).

The report examines the EV results published by MNCs and domestic insurers within Asia, excluding Japan. The scope of the report is limited to EV results directly related to solely, or predominantly, Asian operations. Insurers with a presence in Asia that do not provide separate results for the region are not included in this report.

Interestingly, the number of multinational corporations (MNCs) reporting EV in Asia decreased over 2016. The increased focus on Solvency II reporting in Europe has resulted in diminished embedded value reporting for some insurers. For example, Ageas no longer discloses its Asia EV results separately and Aviva has stopped disclosing group MCEV results, although 2016 market consistent value of new business figures have been published, including separate Asian results. AXA also discontinued the disclosure of its Asia EV in 2016, although it did produce 2016 Asia VNB on a market-consistent EEV basis. On the other hand, three Indian insurers, Exide Life, Reliance Life and SBI Life, published their EV results for the first time for the financial year ended 31 March 2016.


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